Cisco's stock continues to gain momentum following a strong fiscal third-quarter earnings report, prompting HSBC to upgrade its rating from hold to buy. The investment bank raised its price target for Cisco shares from $77 to $137, suggesting a potential upside of nearly 19% from the stock's closing price on Thursday.
Analyst Stephen Bersey noted that the earnings report supports the view that Cisco's involvement in artificial intelligence (AI) is becoming a significant and structural aspect of its business, with AI revenue contributing more than previously anticipated. Following the earnings announcement, Cisco's shares surged by 13%.
For the quarter ending April 25, Cisco reported adjusted earnings of $1.06 per share, slightly above the $1.04 expected by analysts, and revenue of $15.84 billion, exceeding the anticipated $15.56 billion. Year-to-date, Cisco's shares have increased by 50%.
Looking ahead, Cisco projects adjusted earnings per share for the fiscal fourth quarter to be between $1.16 and $1.18, surpassing the consensus estimate of $1.07. HSBC highlighted that Cisco's growth will likely be driven by hyperscaler AI build-outs, enterprise AI networking upgrades, and campus modernization, as demand for traffic management, security, and low latency grows.
Despite facing pressure on gross margins, Cisco's management has identified strategies to mitigate this through pricing adjustments, tighter contract terms, supply chain commitments, operational expenditure discipline, and reduced memory usage in designs.
This positive outlook aligns with the broader consensus among analysts, with 19 out of 26 covering Cisco rating it as a buy or strong buy, and other firms like Morgan Stanley also recommending the stock to their clients